According to a market study by Black Knight, mortgage analytics, data, and technology solutions provider; three in four Americans or 32.4 million households are paying for a 30-year mortgage plan with interest rates higher than the current market average rate of 2.8% by 0.75%. These households are losing out at least $250 per month of savings, a situation that affects their financial well-being in the long term.
If you are wondering why some people opt to avoid refinancing, the truth about refinancing your mortgage can be difficult to debunk and hence the need to always consult a professional mortgage originator as you weigh your options. Based upon insights gleaned from PHH Mortgage Company reviews, it is advisable to rely on experienced professionals offering a wide variety of refinancing options that can fit into your financial plan.
The main facts to note when refinancing are:
Need At Least 20% in Equity
The difference between the appraised value of your home and the outstanding debt on your mortgage is referred to as home equity. Throughout the tenure of your policy, the equity increases and once it hits 20%, depending on the terms and conditions, you will be allowed to refinance and cash out on the difference.
This is because when you refinance, you can apply for a loan that is higher than your outstanding mortgage but lower than the home value and pocket the difference.The higher the equity, the higher the cash out, so it is advisable to always take your time, and ensure that your credit score is excellent to enjoy the highest payout. With credit counseling, you can be put in a better position to make the right decision and build your wealth.
Ideal If Not Planning To Sell Soon
Apart from cashing out on the home equity and looking to save on the monthly and long-term repayments, mortgage refinancing is also used to adjust the mortgage period. For instance, if you are not planning to sell your property, you can always cash out on the equity and extend the repayment period. On the other hand, if you have low equity, you can opt to delay refinancing to increase your equity, especially if the real estate market prices in your area are bullish.
Minimal Credit ScoreImpact
In most cases, mortgage refinancing can lower your credit score marginally depending on how it is reported by your mortgagee. If registered as new credit, this can lower your points marginally, but this can be recovered if you follow through with your monthly remittances. If the mortgage originator reports the mortgage as an existing credit with a few modifications, this will have an insignificant impact that can be corrected in a few months.
Furthermore, the standard parameters of credit score compilation will apply regarding the changes in your debt level. However, knowing about this can be tricky and hence you should be in liaison with your lender every step of the way and keep track of your scores all the time.
Cheaper Than A New Mortgage
When taking a mortgage or refinancing, there are some mandatory out-of-pocket expenses that you are required to pay. This includes loan origination fees, attorney fees, and private mortgage insurance (PMI) fees, and more. However, some of these costs such as the home insurance and appraisal may be waived if you meet certain requirements.
Nonetheless, even if the closing costs are as high as the original mortgage you can leverage on interest rates and end up paying lower monthly payments. This well-known truth about refinancing your mortgage should be a key factor that you consider. But you should also work with a mortgage originator who is willing to bulge and cut some of your out-of-pocket expenses.